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July 25, 2022

No penalty on cash loan to meet business exigency u/s 271D

by CA Shivam Jaiswal in Income Tax

No penalty on cash loan to meet business exigency u/s 271D

Facts and Issues of the case

The  assesse is an individual and having income from business and profession which included interest and remuneration from partnership firm, besides income from other sources. The assesse has filed its original return of income under section 139 of the  Act for the Asst.Year 2012-13 and declared total income at Rs.2,15,690/-. However, ongoing through the cash book of the assesse, it was revealed to the AO that the assesse had received an amount of Rs.10.00 lakhs in cash from his HUF. Therefore, penalty under section 269SS was initiated separately for receiving loan in cash. In response the assesse replied that a cash loan of Rs.10 lakhs was received by the assesse from his HUF   in compelling circumstances in order to honor the posted cheques issued by him in his individual capacity. Due to shortage of time, he could not  transfer  Rs.10  lakhs  from  his  bank  account  to  settle posted cheese issued to various third parties Thus, the cash transaction was being done due to business  exigency  and  extreme need of cash  and  was  between  family  members  i.e.  Individual to HUF. Thus, penalty  under  section  271D  was  not  loveable  as  there was no contravention  of  section  269SS  of  the  Act.

Observations by the Court

The Court has given thoughtful consideration to the submissions made by the both the parties and also perused the impugned orders of the Revenue authorities. We find that the ld.AO has levied the penalty under section 271D read with section 269SS of the Act  on the ground that the assesse has accepted cash loans and  the reasons for accepting loan in cash were also not reasonable and sufficient to drop the proceedings. The intention of this provision is to   bring   down   non-genuineness   transactions.

The case of the assesse was that the  loan  in  cash  was  taken from his  HUF  on  account  of  extreme  business  exigency  and necessity of honoring  postdated  cheques  issued  to  the  third parties. Further at that time, the assesse was not having sufficient balance in the bank, which would otherwise attract provisions of Negotiable Instrument Act and therefore, he was  in  compelling situation taken  the  loan  in  cash  from  his  own  HUF. Besides, to prove the genuineness of the transactions, the assesse has filed Income Tax Returns, confirmation; contra ledger accounts.  That apart the AO has neither doubted the impugned transaction nor any addition made in this behalf even under section 68 of the Act.  Only the reason for the Revenue was that the receipt of the loan was in cash, which was in violation of section 269SS of the Act.

Thus, the Revenue authorities imposed penalty, as if the provision of section 271D is mandatory, without considering the ‘reasonable cause’ explained by the assesse both during the penalty proceedings.  We find that the explanation given by the assesse cannot be disregarded, more so, when it was a onetime affair to meet business exigency and urgent financial necessity. Further, the impugned transaction was from his individual capacity to his HUF capacity.

The Court is not inclined to support the view taken by the Revenue authorities. We delete impugned penalty imposed under section 271D of the Act, and allow the ground of appeal of the assesse.


Penalty levied under section 271D for cash loan to meet business exigency is not applicable.


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